Northrop Grumman Corp (NOC) — Q4 2025 Earnings Call Transcript

Thanks, Todd. Good morning, and thank you for joining our fourth quarter and full year 2025 earnings call. The Northrop Grumman team delivered another quarter of strong operating results, generating the highest quarterly sales growth of 2025 and exceeding expectations across our key performance metrics. Throughout the year, we kept a disciplined approach in executing our strategy. Remaining true to our technology leadership and ensuring our company moves at the speed of relevance, particularly as our customers transform the way they acquire defense capabilities. This business strategy includes our capital deployment plan, prioritizes investments in value-creating growth opportunities, of which there are many in this current environment. Northrop Grumman's portfolio is aligned to what US customers need right now, and we see a clear path to continued solid growth in the future. We ended the year with over $95 billion in backlog, a new company record, driven by over $46 billion in net awards in 2025. Our backlog has grown by nearly $20 billion since 2021, and our five-year average book-to-bill ratio has been 1.1 times. Our 2025 sales and EPS both exceeded the high end of our guidance range, and free cash flow was $3.3 billion for the year. This represents a 26% increase in free cash flow compared to 2024, the third consecutive year of at least 25% growth. This strong performance provides momentum for our company in an increased demand environment and gives us continued confidence in our outlook. This confidence is rooted in our conviction that we have a talented engineering and operations team and a portfolio uniquely designed to deliver the capabilities needed by our US and international customers. In the US, we are aligned with the administration's and Congress's focus on expanding American manufacturing capabilities and capacity on critical programs, ensuring technological superiority. We have purposely built and shaped our portfolio with a focus on our customers' demand signal. We are a leader in developing and delivering advanced and often exquisite capabilities, which are at the core of US warfighting today. However, we have also demonstrated that we can design and develop more affordable solutions that can be produced en masse and fielded quickly. One example of this is high volume space assets that we are building for the Space Development Agency, including our fourth quarter award for 18 Tranche three tracking layer satellites which brings our total SDA satellite backlog to 150. Our missile tracking solution leverages our broad set of missile defense capabilities to provide global detection, warning, and tracking of hypersonic weapons and advanced missiles from the earliest stages of launch through interception. Protecting the homeland is a top priority for the Trump administration, as outlined in the recently released National Defense Strategy. In alignment with the Department of War's focus on acquisition transformation, we are transforming Northrop Grumman. We are moving with urgency and proactivity, bringing innovative solutions to our customers. An example of this includes the latest advancements in our uncrewed portfolio, the first of which is Project Talon, an evolution of our collaborative combat aircraft increment one design that strikes a balance between capability and affordability. Project Talon was designed and built in under 24 months. To accelerate development, we leveraged our autonomous test bed ecosystem Beacon, which is now known as Talon IQ. Project Talon built on Northrop Grumman's seven decades of experience with advanced battle-tested uncrewed systems. In December, the same month that we unveiled it, the US Air Force awarded our aircraft with a designation, the YFQ 48 A. This is only the third CCA platform to have the type of designation. Beyond the interest the Air Force has shown in this system, we also believe Talon will have broad global appeal. I want to highlight a second example in our uncrewed market, which speaks to our partnership approach. We teamed with Kratos to develop a collaborative combat aircraft for the marine, and received a $231 million award late last year. The expeditionary uncrewed aircraft combines our batch experience in multifunction mission systems with Kratos' proven platform, the Valkyrie. We've completed more than 20 successful demonstrations in operationally relevant environments, and we are working to wrap up fill this capability to work alongside crude fighters. Our focus extends well beyond developing the next generation of space and airborne uncrewed platforms. We are equally dedicated to scaling our operations across our portfolio to meet rapidly increasing demand including critical areas like munitions. To address the growth in munitions, we have made significant investments to expand capacity for existing programs and in support of second source initiatives. Since 2021, we have successfully doubled our production capacity for tactical solid rocket motors at our ABL facility in West Virginia and are now advancing efforts to further increase that capacity by another 50%, effectively tripling our tactical SRM production capabilities at that facility by early 2027. We're making similar investments to expand capacity at our Elkton, Maryland site to triple capacity there by 2030. This proactive approach places us in a strong position as the weapons market continues to expand. On one end of the spectrum, we are developing cost-effective solutions that can be quickly designed, produced, and deployed at scale. On the other end of the spectrum, for our nation, we are also developing and producing unmatched strategic deterrence assets. This includes executing on numerous programs in the restricted arena, comprising over 30% of our business. It also encompasses emerging areas in space, which has evolved into a warfighting domain. Space security capabilities to protect space assets represent a tremendous growth opportunity for our company, given our proven technology and experience in this domain. These capabilities are fundamental to maintaining the most advanced military in the world. Our contribution to strategic deterrence also includes our work on modernization of the triad. Regarding the status of our work on the triad, the B-21 program is meeting key milestones, including the first flight of the second aircraft in 2025. In the fourth quarter, as expected, we were awarded the LRIP Lot three contract, as well as advanced procurement funding for Lot five. We continue to work closely with the Air Force on plans to increase the production rate of the program. Our priority is to establish a mutually beneficial agreement that accelerates the delivery of this game-changing capability to our nation. Funding for this acceleration has been approved as part of the reconciliation bill, and I am optimistic that we will come to an agreement with the Air Force this quarter. We also continue to make progress on Sentinel, advancing key aspects while partnering with the Air Force to restructure the program. In addition to continued progress on the missile, we are maturing launch silo designs and moving forward with prototyping activities in the command and launch segment of the program. In the United States, our customers are turning to industry to move beyond traditional business models, break down bureaucracy, and increase deliveries of capabilities at a faster pace. Importantly, they have backed this request with funding, creating an immense opportunity for Northrop Grumman. We are encouraged by the recent $1.5 trillion FY 2027 budget recommendation, which indicates the potential for historic growth in defense spending. In support of this approach, we are bringing proposals forward to accelerate our program, embrace new ways of working, and partner more effectively with our customers. Our company is well aligned with the administration and Congress's focus on speed, capacity, and performance, all in support of national defense. We are hopeful that FY '26 defense appropriations will be completed soon, and we see strong support for the capabilities we deliver to the warfighter in the bill moving through Congress now. We also expect reconciliation investments to move forward this year. Internationally, we are experiencing strong momentum as allied nations increasingly invest in enhancing their national security capability. Our international growth strategy focuses on both exporting products manufactured in the United States and forming industrial partnerships to develop indigenous capabilities in these nations. We are successfully executing this strategy, with international sales growing by 20% in 2025. Demand signals remain strong, and we anticipate continued growth in 2026 and beyond. The global appetite for our technology is fueling this demand, particularly in air and missile defense systems, advanced munitions, radars, and a diverse array of airborne capabilities. We've now received formal requests to acquire IDCS from over 20 countries, and we are seeing notable progress on multiple other opportunities, including ground-based radars where we expect contracts from customers in the Americas, Middle East, and Asia Pacific. The robust global demand environment supports our 2026 guidance, which is consistent with the outlook we provided you in October. We're positioned to deliver another strong year of sales and margin growth, enabling our ability to generate cash and invest in our business. As a result, we expect to increase capital expenditures this year. Our focus will be on a variety of high-impact value-generating initiatives in areas such as solid rocket motors, missile defense, advanced technologies, and restricted capability. These investments are intended to create long-term value for both our customers and shareholders by delivering advanced solutions quickly, enabling our military to maintain its competitive edge. 2025 was a strong year for our company, and we are well positioned to continue this success into 2026 and beyond. I'd like to thank the entire Northrop Grumman team for their contributions to our results and your dedication to our customers. We are proud of the impact our products have on global peace and stability, and we share the sense of responsibility and urgency our customers have to provide our nation and allies the best products in the world. Before turning the call over to Ken, I want to welcome John Green, who joined our team as CFO earlier this month. John is an experienced CFO and has a proven track record of driving growth and operational excellence, and I look forward to working with him. I also want to extend my deepest gratitude to Ken for his leadership and significant contributions during his more than twenty year career with Northrop Grumman. He was instrumental to our strong finish to 2025 and he has ensured a smooth transition to John. Thank you, Ken. I'll turn the call over to you.

Morning everyone, and thank you, Kathy. Today, I'll walk you through our 2025 results, after which John will discuss our outlook for 2026. 2025 marks another year of strong financial performance reflecting robust demand for Northrop Grumman capabilities and our continued focus on operational excellence. I will begin with top line results on slide five. Fourth quarter sales were $11.7 billion, up 10% compared to the prior year. On a sequential basis, Q4 sales accelerated 12%, consistent with the expectations we outlined on prior earnings calls, with Q4 representing 28% of our full year sales volume. Aeronautics Systems was the fastest-growing segment in the fourth quarter, with sales of $3.9 billion, up 18% compared to the prior year. The increase was driven by material timing on the F-35 program, continued ramp on Takimo, and higher volume on the B-21 program enabled by the liquidation of inventory associated with LRIP Lot three and Lot five advanced procurement awards received in the quarter. At Defense Systems, Q4 sales grew by 7% on a GAAP basis, 12% organically, with broad-based growth throughout their portfolio. This included higher volume producing solid rocket motors for the guided multiple launch rocket system, higher sales in the missile defense portfolio, primarily IPCS, and an increase on Sentinel as the program continues to ramp. Mission Systems achieved double-digit growth in Q4, driven by strong production volume on restricted programs, F-35, CWIP, and international radar systems. And as we expected, the space segment returned to growth in the period, with sales up 5% compared to the fourth quarter of last year. Higher sales were driven by increased production of Gen 63 motors for Amazon's Project LEO and increased volume on certain restricted programs. In total, 2025 sales were $42 billion, up 3% organically compared to the prior year and above the high end of the guidance range we provided in Q3. Moving to the bottom line on slide six. Strong operational performance continued in Q4, with segment operating income up 10% year over year and a segment operating margin rate of 11.2%. Aeronautics Systems operating income increased by 20% driven by higher sales volume and sound program execution, and there were no significant changes to the B-21 EAC in the quarter. Defense Systems operating income was down modestly, principally due to lower net EAC adjustments in the period. Higher sales volume at Mission Systems, coupled with favorable mix in the quarter, led to a 9% increase in operating income. The space segment had an outstanding quarter of operational performance, with operating income up 17% and an operating margin rate of 11.3%. These results were driven by higher net EAC adjustments and a more favorable contract mix. Turning to EPS on Slide seven, Q4 mark-to-market adjusted earnings per share were $7.23, up 13% compared to last year. The increase was driven by higher sales and strong segment performance. Lastly, I'll take a moment to discuss our cash performance. We had a particularly strong quarter of cash generation in Q4, as is our seasonal pattern. For the year, we generated $3.3 billion in free cash flow, near the high end of our guidance range, up 26% compared to 2024. I would like to conclude by expressing my appreciation for the Norfolk Grumman team. It has been an honor to work with so many amazing people over my twenty two year tenure. I want to thank this team for their partnership and unwavering commitment to our customers, shareholders, and fellow teammates. I would also like to congratulate John. I've enjoyed working with him over the transition period, and I am confident that the Norfolk Grumman team will continue to achieve great things moving forward. John, over to you.

Thank you, Ken, and good morning, everyone. It's an exciting time to join Northrop Grumman as we enter 2026 with strong momentum across our portfolio. I'll begin on Slide eight by walking you through our guidance for 2026 including expectations for a year of broad-based growth across the portfolio. Notably, our guidance is consistent with the outlook provided in October and does not yet include an accelerated B-21 production rate. For 2026, we expect sales to be between $43.5 billion and $44 billion representing mid-single digit growth at the company. This is supported by strength across all four business segments and builds upon our disciplined execution and market demand. We expect Q1 sales to be up low single digits, partially driven by fewer working days in the quarter. Growth is expected to accelerate throughout the year, similar to the cadence experienced in 2025. On the bottom line, execution and margin expansion over time are expected. We remain focused on disciplined program execution driven by cost efficiencies, operational leverage, and mix. 2026 segment operating income is projected to be between $4.85 billion and $5 billion reflecting continued strong performance and a low to mid-11% segment operating margin. 2026 mark-to-market adjusted earnings per share are expected to be between $27.4 and $27.90, up mid-single digits. This includes our latest estimate for pension income, an effective tax rate of low to mid-17%, and $620 million in interest expense. We expect roughly $280 million in other unallocated corporate expenses in 2026, a level that is reflective of our normal run rate excluding unique and extraordinary items. We assume our share count will remain relatively flat. In 2026, free cash flow continues to be estimated between $3.1 billion and $3.5 billion. We are offsetting a higher capital spend outlook with strong operational cash flows. Moving to segment level guidance on Slide nine, Aeronautics Systems sales are expected to grow to mid $13 billion. This growth is supported by increased volume on programs like B-21 and Takimo, partially offset by lower materials volumes and stable production rates on the F-35 and E-2 programs. We also expect a modest headwind on the FA-18 program with the final production lock completed in 2025. Margins are projected to be low to mid-nine percent, reflecting the higher mix of development programs. Defense Systems remains our fastest-growing segment, with sales expected to rise in the low double digits organically to the mid to high $8 billion range. Growth will be broad-based, driven by strong demand across weapons, missile defense, and strategic deterrence programs. Operating margins are expected to remain steady at around 10%, comparable to the performance in 2025 absent the $76 million favorable EAC adjustment on Sentinel. Mission Systems is projected to deliver sales in the high $12 billion range, building on double-digit growth in 2025 with broad-based demand across their diverse portfolio. Investments in digital technology and factory utilization continue to drive efficiency improvements, with margins expected to improve further into the high 14% range this year. Space segment sales are expected to grow to approximately $11 billion in 2026. Growth drivers include higher sales on multiple restricted space and missile defense programs. We expect stable GEM 63 volumes and modest headwinds on NASA programs. Operating income is forecasted to be in the 11% range, consistent with the prior year. Lastly, intercompany eliminations are projected to be approximately $2.4 billion with a high 13% operating margin rate. Turning to pension performance on slide 10, 2025 ended on a strong note with asset returns of 11.3%, improving our funding status to 106%. This year, cash recoveries are forecasted at $245 million, slightly lower than prior projections due to our favorable funding status. We expect to make minimal annual cash contributions over the next several years, consistent with prior guidance. I'll end my prepared remarks with a few comments on capital deployment. First, $527 million of fixed-rate debt will mature in March, and we intend to pay down the note with cash on hand. Our capital deployment strategy remains focused on driving growth and reinvesting in the business to maximize shareholder value. In 2026, capital expenditures are projected to be $1.65 billion, approximately 4% of total sales. This represents an increase compared to prior expectations based on the strong demand environment we see ahead. These investments will enhance production capacity and support the industrial base, ensuring we're positioned to deliver growth well into the future. Before I close, I wanted to share some personal thoughts. I'm honored to join Northrop Grumman in support of its mission at such an important and exciting time. In the coming years, I look forward to working with this outstanding management team on our strategy and deliver value for our stakeholders. In summary, 2026 is shaping up to be another year of strong growth with continued momentum across our portfolio. Before I open up the line for Q and A, I also want to thank Ken for his tremendous support during our transition. With that, let's open the call for Q and A.

Good morning, we could just pick up on your remarks, your prepared remarks on transforming Northrop Grumman. How are you broadly thinking about how a company with breadth and depth and legacy of Northrop Grumman aligns with this push towards non-traditional markets? You pointed out a couple of the CCA programs and unmanned systems that you've done, but strategically, how are you thinking about it? It seems like you all are doing quite well at it, but could you double-click on that or peel back the onion on this?

Thank you, Ron, for the question. As you said, we have been transforming the way we are meeting our customers' needs. I talked about it somewhat in my prepared remarks, how our strategy for technology leadership has not changed. But we are directing that talented engineering and operations team to be able to design products that can be fielded more quickly, balancing the need for performance with affordability and speed to market. Thus, we believe that we have all of the foundation to meet this moment, but we are directing that talent in ways that are more aligned with what this administration has a strong sense of urgency to do, which is field capabilities quickly. We have also been investing in our business to build capacity, which is critical to fielding capability quickly. I talked about solid rocket motors and how we have already doubled capacity and will triple it by early next year. I discussed the work we are doing in space, where we've gone from producing tens of satellites a year to hundreds. We are also looking to accelerate programs like B-21, and across this entire portfolio, we have the opportunity to lean into moving faster, and we're organizing ourselves to be able to do that.

Alright. Thank you very much.

Good morning, everyone, and thank you. Kathy, maybe expanding on Ron's question a little bit and your answer. The fiscal 2027 budget provides a lot of money out there to be contracted, and as you think about your 2026 plan and longer-term trajectory of growth, where do you see the biggest opportunities for acceleration? And how do you balance that with some of the investments that you need with that capacity?

Yes. Thank you, Sheila. We are absolutely taking a balanced approach to what we have incorporated into our guidance and what we still see as opportunity ahead. What is incorporated into our guidance is where we see clear funding and where we have accumulated backlog or a high expectation of award. There are a few areas we've specifically called out, like B-21 and APeX, where we have not incorporated that yet into our guidance. That is really how we are thinking about our 2026 guidance. There is a good bit of opportunity out there for our team to capture in this opportunity-rich environment, but we have incorporated into our guidance what we clearly believe is headed toward contract or already in our backlog.

Got it. So maybe my follow-up is, as we think about '26 growth in the mid-single digit range, does it accelerate from there in '27 as we think about international coupled with that?

We believe that it does based on the signals we are receiving regarding the FY27 US budget and the fact that we see continued acceleration in demand in a few of the areas of growth that we expect to see. We believe we will have a book to bill internationally well above one again this year, and that positions us for growth into 2027. Thank you.

Kathy, going back into the 2026 revenue outlook, backlog is at a new record $96 billion as you called out, and the midpoint of your outlook provides 4% year-over-year growth. Can you talk about what's driving the significant conservatism in your outlook? What are the key variables that convert more of this backlog into revenue? And can you size the B-21 and APeX that's not in your guidance? If those contracts were to firm up, how could that change your '26 outlook? Thank you.

So, Christine, you call it conservatism. I'll call it a balanced approach. It's a dynamic environment. As we look at 2026, we believe we have invested in the areas that will see significant growth in the coming years. Munitions, which I spoke to with our solid rocket motor capacity, Golden Gelm, and associated opportunities for homeland defense, the APeX program, our collaborative combat aircraft offering. Yet, as we sit here in January, we have not yet seen those opportunities progress towards contract, and we believe that will happen over the next twenty-four months. The timing of that is much more difficult to predict as we sit here. In terms of translating into 2026 sales upside, we believe there is opportunity there, but it's difficult to pinpoint. As we look to 2027, we feel much more confident that those opportunities will lead to increasing sales. We're taking the long view as we always have, both in how we think about investment and the long-term growth trajectory of the enterprise.

Thank you.

Hey. Good morning. John or Ken, you got a big award on Gen 63 here in the quarter. But I believe in your prepared remarks, you called for flat volumes on that program. So can you clarify why the volumes are flat on Gen 63 in light of that award? Should we expect growth there to reaccelerate in 2027?

Yes, as you know, Scott, this is Ken. Historically, this is an area where we've been investing in capacity. When we think about 2026, it will be flat year over year as we continue to expand that capacity. To your point, in 2027, we do expect Gen 63 to continue to grow, and over the long term, it will continue to be one of the growth drivers for our space systems segment on top of other activities, including restricted, space security.

Okay. And then, Kathy, sorry if I missed this, but if the B-21 acceleration of work hits in the quarter, should we think about that as being potentially additive to 2026 EBIT dollars? Or is it more of a wash in 2026?

So as we sit here today, we are still working through the finer points of that deal and its financial implications for the company. We do expect to invest $2 billion to $3 billion over a multiyear period. We do expect to have a better opportunity for returns on the program, again, over a multiyear period. We do expect accelerated revenue as a result, ramping over a multiyear period. You won't see a tremendous amount of impact in 2026. The greater impact of all those components will happen in 2027, 2028, and somewhat into 2029. Hopefully that gives you a better sense for modeling.

It does. Thank you.

Thank you.

Thanks so much. Good morning.

Good morning.

If I'm correct, I don't think your prepared comments had any mention whatsoever of dividends or buybacks. So I was wondering if you could give us an update on what your thoughts are there, particularly given recent commentary from the U.S. Government.

Yes, I'll be happy to take that. So when the team built the plan, we took a look at our capital allocation strategy and what we're seeing. The team saw a robust opportunity to deliver future earnings through investment. So we made a decision to keep the share count flat and increase our spending on property, plant, and equipment in order to build out the industrial base, similar to what I commented in my prepared remarks. The plan at this point is not to execute on additional buybacks beyond the end of this month, January. The dividend will be agreed with the board in the May timeframe. We expect an update on that associated with the second quarter earnings.

Okay. And then a quick follow-up, linking into that. In terms of the growth going forward, how much of this is dependent on the supply chain? Are they a pacing item here? Do you expect Northrop Grumman to invest its own money in the supply chain?

As I mentioned, we are already partnering with our supply chain as we look at capacity expansion. We do detailed operations planning with our supply chain, and in most cases, they are investing alongside us. We do see areas that will require assistance from the federal government, not just for our contracts but more broadly. This tends to be at lower levels of the supply chain in areas like raw material, including rare earth, and in those cases, the government often engages directly with those participants in the supply chain to address shortages. But most of the activity is through us and our direct work with our supply chain.

Okay. That's great. Thank you very much.

Thank you.

Hey. Thanks very much, and good morning, everyone. Just wanted to clarify on that last question. I mean, I think the assumption is that Northrop will continue to be paying dividends, I assume, right?

Yes, 100%. Yes. We're simply talking about the May timeframe when our board looks at our annual increase in the dividend. It would be premature to speculate on that.

Okay. Alright. And then with regard to the remainder of the cash, I guess we think about the dividend. So probably left with about $2 billion and I think you talked about repaying $05 billion of debt. You know, well over $4 billion on the balance sheet. Do you anticipate holding more cash on the balance sheet? Do you anticipate that there might be opportunities that emerge within the year or shortly after that would require significantly more near-term capital investments? What would happen to the balance of this year's cash flow?

In terms of the overall cash position of the company, we're in a situation where we see great opportunities to invest. I mentioned the increase in capital deployment; certainly, some cash will be allocated to that. We also, as we look at our day-to-day cash position, think there's an opportunity to maybe scale that up slightly given the growth of the business over the past four or five years. So we'll be looking at that. In the debt stack, there is at least one note that the coupon's over 7%. We'll take a look at the analysis around that to see if it makes sense to deploy some cash that way. The cash conversion cycle of the business is outstanding, and we'll have an opportunity to make smart decisions about how we're gonna deploy cash and ensure we're efficient with it.

Great. Thanks very much.

Hey. Thank you. Good morning.

Good morning.

Looks like you're absorbing higher CapEx in your free cash flow guidance this year, but do you still have line of sight to $4 billion in 2028?

It's a little early to project 2028 at this point based on the set of opportunities that I mentioned earlier. With the B-21, if we have the opportunity to accelerate that program, it will be good for our shareholders in terms of long-term revenue profile and earnings, but we will need to invest more in facilitating that acceleration. We also have a number of opportunities that are pending award, and we want to be in a position to have cash on hand to invest more in supporting those opportunities as they align with the administration's priorities in homeland defense, uncrewed fighters, and vehicles, to name a few. As we look at those sets of opportunities, likely being determined later this year into early 2027, that will really set our CapEx profile and any increased sales and earnings that we would expect to achieve as a result of those flowing into the plan. Our capital deployment strategy has not changed, and we continue to focus on the discipline around where we choose to invest.

Okay. Appreciate it. Do you mind clarifying the B-21 investment comment you made, the $2 billion to $3 billion? Is that before or after an acceleration?

That is for the acceleration. So that's only if we agree to an acceleration, and it is over a multiyear period of time. That's why I outlined for you that would be our expectation for total investment to get to the accelerated rates.

Thank you very much.

Thank you.

Thank you.

Hey. Thanks for taking my question. I wanted to revisit the quarterly cadence in inorganic growth. I think I heard you say that it's going to accelerate throughout the year. You know, 10% organic growth; that's on the back of a very big fourth quarter number. I wanted to explore the possibility of maybe a stronger start to the year than a sharp deceleration. It seems like you've got a lot of momentum exiting the year.

We did have a lot of momentum in Q4. However, there are a few factors contributing to the profile that we talked about, which will look similar to what we experienced in 2025. One factor is we did have a very strong Q4, and part of that was material timing and delivery, which naturally will not reoccur in the first quarter. The second most material factor is that at the enterprise level, we have sixty-one working days in the first quarter. This is a very low profile. Typically, our quarters have sixty-two, sixty-three, or even sixty-four days. This year, that profile climbs. Usually, Q4 is the worst, and then we recover that in Q4. So these two factors primarily drive the profile this year, and we expect to have a good growth quarter in the first quarter, though it might not be as strong as what we expect later in the year.

That's really helpful. And if we think through that, '26, you'll be putting up the largest organic growth on the 10% comp this year, so the year-over-year rate is gonna be quite dramatic. You’ve talked about positivity into '27, but it seems like you'd be exiting '26 with a lot of momentum and maybe the step-up there could be significant. Is that the way to think about it at a high level?

It absolutely is. The backlog growth that I talked about in 2025 takes time to ramp as we progress through the year. In 2026, particularly our space business, which had a very strong book to bill last year, we expect to see those opportunities ramping up top line and carry that momentum into '27, and this is true across the portfolio.

Appreciate it. Thank you.

Thank you.

Thanks. Good morning. I was curious if there was any net effect in the shutdown on the numbers, whether in the P&L or cash statement in the fourth quarter? And then, Kathy, bigger picture, if you know, suspending disbelief that the defense budget did climb 50%, that kind of seismic shift would suggest maybe seismic shifts in company strategy as well. Perhaps. So what, if anything, would you revisit if you did have that level of step function in terms of positioning the portfolio, investing in the portfolio, maybe just communicating what investors should be looking at?

In terms of impact from the shutdown, there was no major impact from the shutdown, and that was reflected in our strong year-over-year growth. We exceeded the top end of our guidance range on sales and generated $3.3 billion in cash in Q4, creating 26%. Overall, to the first part of your question, there was no material impact on 2025 based on the shutdown.

On the second part of your question, we are already thinking about this accelerated growth environment. Certainly, trillion and a half defense budget would be a significant acceleration in national security spending, one unlike any we've seen before. The things we are doing as a company to prepare ourselves for this growth include moving at speed, building capacity, and preserving cash to ensure we can continue deploying it back into the business to support this unprecedented growth opportunity, both in the US and abroad. This is the most robust demand environment I've seen in my career. It does have us thinking very differently, as I outlined in my prepared remarks and in answer to Ron's question about how we're transforming the company.

Okay. Thank you.

Yes. Hi. Good morning. Thanks for the question. Hey, Kathy. Can you talk about what the guidance implies for international growth in 2026? You've called out a number of quarters now. It seems like an accelerating opportunity for IBCS in particular. When could we expect to see some contract announcements out that go beyond the customers you've already talked about?

Yes. For international, we expect 2026 to be a particularly strong year in awards, setting us up for 2027. As I noted in my prepared remarks, we do have 20 countries that have expressed interest. We expect the US and Poland to continue to expand deployment this year, and we have another two or three that we expect to announce awards this year followed by others from that pipeline of 20. Our international sales growth is widespread. Munitions is another area where we see significant growth and expect that to continue. I noted some airborne radar programs that we anticipate awards on this year. We won't see much sales impact in '26 from those; the awards will come this year, and then sales will ramp more in '27. We also see continued ramp-up in our base business internationally.

Great. Thank you.

Thank you.

Thank you. Good morning, everybody. I just have one two-part question on backlog. Could you discuss the quarter-over-quarter changes in backlog at Space? I think it was roughly up about $2.3 billion. Kathy, was that all from the constellation you mentioned in your opening remarks, or was there anything else? The second part: Given the strong bookings for the company in '25, with a book-to-bill of about 1.17, should the expectation be better than 1.17 for 2026, given your backlog growth comments and what you've been saying this morning?

The drivers of space backlog were threefold, really fourfold. We were able to secure the award for Gen 63, which is Amazon's Project LEO, with deliveries taking us well into the 2030s. We were also successful in a competitive award for the T three track with the additional 18 satellites. We secured another launch for CRS, and we had significant growth in awards for our restricted portfolio. That’s two quarters in a row for space where they've been at 1.8 times sales or greater, positioning us well for the long term. For 2026, given the strong backlog and the fact that we have some large significant programs with existing backlog, you should anticipate that book-to-bill will be around one time sales for 2026.

Well, thank you very much.

Absolutely.

Yeah. Thanks. Good morning, and congratulations Ken. Wanted to just ask about your perspectives on LHX entering into this transaction with their missile portfolio and the government. You guys obviously have Orbital ATK. Does that transaction with LHX disadvantage Northrop in any way? Are there opportunities that you see within the portfolio for a similar type of government-led investment?

We have been investing in our solid rocket motor capacity, and we feel we are well-positioned with the capacity that we've brought online to deliver on both our commitments and additional second-source initiatives that the government has asked us to be involved in. So we are funding that capacity investment. While we're not in discussions with the government about an arrangement similar to what L3Harris entered into, as we think about being positioned to compete, it all comes down to the munitions that you can support with your capacity, and we feel good about that. It’s about your performance, and we feel good about that as well. Lastly, it’s about your commitment to continue to invest, which we have demonstrated, so we feel well positioned to compete for a very broad set of opportunities in this space. I think there's room for growth for many companies.

Thank you.

Good morning. Thank you. On Sentinel, the Center of Services committee has talked about an IOC sort of at 2033. This has continued to push out, and I know a lot of this is related to Air Force infrastructure. But can you talk about how we should look at the trajectory for Sentinel revenues and margins since it has to affect the timing as you go from development into more fixed-price work?

Doug, we are in the middle of supporting the US Air Force as they restructure the Sentinel program. They will be firming a schedule that will lock in new timelines for milestone B, initial operating capability, and final operating capability. I don't want to get ahead of the Air Force in discussing that, but we are working to accelerate the timelines that were published coming out of the Nunn-McCurdy breach two years ago. The goal is to reduce delays and identify options to do so. We still believe the program will be in development for several years and not transitioning into production until later in the decade. That production will very much be guided by milestone achievements during development. So that has not changed from what we've been discussing, and it does not impact our guidance or outlook because our outlooks only extend a few years.

Okay. And then on aeronautics, the margin guidance in the low to mid-single digit range for this year was lower than many of us expected. I know you talked about there being more development work, weighing on that margin a little. But do you think we'll see a path to 10% margins in aeronautics over the next few years?

The margin rate we guided for 2026 is driven by two factors. The first is the growth for Aeronautics Systems in 2026 is primarily from B-21, and with a market profile, that's 0%. The second is driven by development programs like Takimo. Our mature production activities with the higher rates are relatively stable flat when you think about F-35 and E-2D. That said, as we have the opportunities to exit the LRIP activities on B-21, adding these other development programs will shift to production. We do see AS continuing to create accretive margins and get back to that 10% again over the long term.

Okay. Very good. Thank you.

In closing, I just want to summarize that I am optimistic about the positioning of our company as we experience significant growth in global demand. This team is committed to meeting the needs of our customers for robust and scalable solutions that can be deployed rapidly and provide the strategic deterrents and decisive advantage they need. We're equally committed to turning those opportunities into value creation for our shareholders. So thank you again for joining us on the call today. I also want to thank Ken, as this is his last call with us, and the entire Northrop Grumman team for their service to the nation. Have a good day.

Thank you.